1. Market Solution Definitions • Market Solution • A Market Solution exists when at least three unaffiliated Resources, with capacity available, submit bids to ERCOT that can solve a circumstance of local Congestion and no one bidder is essential to solving the Congestion. ERCOT Protocols Section 2 • Resource Entity • A Market Participant that owns or controls a Resource. ERCOT Protocols Section 2 • Resource Entity Affiliation (REA) • A code used by the ERCOT systems to identify a group of affiliated resources.

2. Implementation

3. Market Solution Decision Tree N Stop Local Constraint? Y Market Solution for Zonal Balance Constraint? Market Solution for Local Constraint? Local: OOM Zonal: Pay-As-Bid N Y Y N Market Solution for Zonal Balance Constraint? Local: OOM Zonal: OOM N Y Local: Pay-As-Bid Zonal: Pay-As-Bid Local: shift factor <> 0 Zonal: shift factor = 0

4. Example Scenario 1 • Constraint solvable. • >= 3 unaffiliated resources • Constraint: No one bidder is essential to solving the congestion. MW contribution from a single REA <= ∑ Additional Available MW from other REAs OC: Market Solution! • Zone: No one bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA <= ∑ Additional Available Zonal UBES (DBES) MW from other REAs Zone: Market Solution! • Unit A (Shift Factor = 0.5) • If constraint has market solution and zone has market solution, resource part of a market solution. • Unit Z (Shift Factor = 0) • If zone has market solution, resource part of a market solution.

5. Example Scenario 2 • Constraint solvable. • >= 3 unaffiliated resources • Constraint: Bidder is essential to solving the congestion. MW contribution from a single REA > ∑ Additional Available MW from other REAs OC: NO Market Solution! • Zone: No one bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA <= ∑ Additional Available Zonal UBES (DBES) MW from other REAs Zone: Market Solution! • Unit A (Shift Factor = 0.5) • If constraint has market solution and zone has market solution, resource part of a market solution. • Unit Z (Shift Factor = 0) • If zone has market solution, resource part of a market solution.

6. Example Scenario 3 • Constraint solvable. • >= 3 unaffiliated resources • Constraint: No one bidder is essential to solving the congestion. MW contribution from a single REA <= ∑ Additional Available MW from other REAs OC: Market Solution! • Zone: Bidder is essential to solving the congestion. Awarded UBES (DBES) MW in Step 2 for a single REA > ∑ Additional Available Zonal UBES (DBES) MW from other REAs Zone: NO Market Solution! • Unit A (Shift Factor = 0.5) • If constraint has market solution and zone has market solution, resource part of a market solution. • Unit Z (Shift Factor = 0) • If zone has market solution, resource part of a market solution.

7. Summary 1.Data from manually verified intervals in 9/2002, 12/2002, and 1/2003. 2.Data from intervals in 9/2002 and 12/23/2002 – 1/28/2003